New Tariffs Aimed Directly at Real Estate Investors (Who They’ll Affect)

0:00October 1st was a very interesting and somewhat pivotal day for the housing market. We had all sorts of policies and news converging on that day, everything from a government shutdown to changes in FEDI and FRANI loans, changes to the student loan repayments, how FEMA is dealing with flood insurance. We have new tariffs that are going to be impacting the housing market. So a lot happened last Wednesday, and this is important stuff that everyone needs to know. So today we're breaking it down.

0:32Hey, everyone. Welcome to On the Market. I'm here, just me and Henry Washington today. What's up, bud? What's up, buddy? Glad to be here. I'm also glad to be here. It's very unfortunate that Kathy and James just completely abandoned us. They just left us high and dry. And, you know, but we're going to pull it together. We're going to pull it together. It's pretty rude because the reason that they're not here is because Henry and I are playing golf tomorrow during our normally scheduled time to go to record this. And we were like, yeah, if you guys can't adapt to our schedule, we're definitely still playing golf.

1:10So Henry and I will just do the podcast ourselves. That's the real story of what's going on. Henry and I are on a vision quest in Las Vegas right now for eight days before BPCon just having a lot of fun. So hopefully we're going to see a lot of you there. This airs, I think, while BPCon will be going on. So hopefully we'll be seeing you today among the many thousands of people who will be here in Vegas talking about real estate. Come say hello and ask us who won our golf head-to-head tournament. What is going to be – what are the rules? Are we just playing straight up, you against me? I think we're playing – I don't know if we want to play match play or if you want to play just straight score, but we definitely need to implement our gimme putt rule.

1:57Okay, so yeah, I saw this game I was proposing to Henry where if you know anything about golf, you get the distance of your putter. Like if your ball is that close to the hole, it just counts. You don't actually have to go make it. But in this game, for every alcoholic beverage you drink, you add the size of that can to the end of your putter. So if you drink like four beers, you go from like a three-foot gimme to a five-foot gimme. And that actually kind of matters, and we might be playing this way. Yeah, absolutely. Absolutely. So stay tuned. We may capture some content. All right. Let's get into our topic for today, which is all these things that are going on on October 1st.

2:36This is basically just for whatever reason. I don't think there's any particular reason, just coincidence. There are all these things converging on the housing market and the economy as of October 1st. We, of course, now know that we are in a federal government shutdown. And this could change by the time this airs, just because so you guys know, we are recording this on October 2nd, and this comes out a few days later. So that may have changed, but the way it's looking, we'll probably still be in a federal government shutdown a week from now. We also saw the flood insurance program. There's basically the national program that funds FEMA for flood insurance actually expired.

3:19And so any homeowners who had that will face some challenges. We saw a new tariff start on October 1st, and these seem really aimed at real estate, which I want to talk about. 50 % tariffs on kitchen cabinets and vanities, 30 % on upholstered furniture, and the sneaky one that's probably going to impact housing a lot, 25 % on construction trucks. Then we have all sorts of changing to FHA and HUD laws and more. We even have some other stuff not about October 1st to talk about today. So let's just jump right into this. Henry, how are you feeling about this government shutdown? You got deja vu? Yeah, it feels like we did this not that long ago.

3:58I know it wasn't super recent, but this has happened before. And so we've kind of seen how it can or cannot impact the housing market. I had to Google it because it feels like we've had like 30 government shutdowns. I think we've had two. Yeah, but there has been, I think it was 14 between 1980 and now. But it does feel like we've been talking about it way more. I think the last one was in 2018, 2019, something like that. But they've been threatening this every single year. So before we get into the details of what this actually means, big picture, high level, does this impact you specifically in your real estate investing business?

4:40No, mostly because I'm not doing Section 8 housing, so I don't depend on government funds to pay my rents. So the only real way that I see an impact on this is tenants who have government jobs who may not be getting paid for this time. So if they're essential and they're working, they're working and not getting paid. And if they aren't essential and they're not working, they're not getting paid. So it could impact rent collection for the few tenants I have that are employed by the government. We're always willing to work with people in situations like this. So I don't see that it's going to make a massive impact on me and my portfolio personally.

5:18Could also impact my flipping business if I had any buyers that were government employed who now can't qualify for a loan or won't be able to buy the house until there's some resolution here. But other than that, no major impacts to my business. Yeah, that's generally how I feel about it. I think the biggest thing across the whole housing market is really going to be sentiment. It's just do people pull back on spending or moving or just making big life decisions because this is just one more uncertainty in the economy. And we're already in a period where there's a lot of uncertainty. So is this just going to add to that situation?

5:59But I do think the Section 8 thing is real. Like just so you know, the way this works is that Section 8 payments should continue to go out at least for a period. But if there is an extended shutdown, there could be impacts to Section 8 funding. That is something that anyone who has Section 8 tenants or is thinking about getting into Section 8 should be aware of. I was actually looking into this a little bit. The estimate is that if the – as long as the shutdown is less than like two months, then HUD and Section 8 shouldn't be impacted. But we're in this very unusual economic and political time.

6:40So normally I'd say, oh, it's going to get sorted for sure within two months. But like I honestly have no idea. I have no idea if this is going to like last two more days, two more months or what's going to happen. Of course, like the thing that really matters is, of course, the people who are like directly impacted by this. Government workers are getting furloughed, and although they will presumably get paid once this is over, people are going without paychecks, and that could impact the economy. I've also seen some reports that travel and tourism could slow down. Like there's always these negative impacts to national parks, to TSA and air traffic control because sometimes people, if they're not getting paid, like they just don't show up for work.

7:21Because suggesting you do that, but not saying I don't understand that concept. So I think those things could impact just the general economy as well. But I think it's right. If it's short, it's really going to be probably a blip in the grand scheme of things. If it's long, it's probably going to really impact the economy just by lower spending and lower total transactions in the housing market and in the broader economy. Yeah, and I think you're onto something. Because if sentiment gets worse, then people stop doing things like spending money, which is what our economy is based on. And so I think we'll start to see an impact just in the fact that people are spending less money, doing less things.

8:06And that's going to – that will create a – everybody will feel that. Yeah, I'm not going to say it's like the nail in the coffin, but it's just one more thing in a world right now where there's just so much confusion that's just going to add a little bit more confusion. So that always has the potential impact on the economy. I won't get into this because it's less about the housing market. But I do think this is just one more thing that is decreasing investor confidence in the United States. We're already seeing the dollar get a little bit weaker over the last couple of days. We're seeing the stock market down a little bit, not a ton, but just like a little bit.

8:43And if those things do continue, that could negatively impact mortgage rates as well. If those two things happen again, that could impact mortgage rates, honestly, in either direction, depending on how long this goes. So it's definitely something we'll keep an eye on and keep you posted on in the future. Wait, before we move on, I have one more thing to say about government shutdowns. Why does Congress get paid during a government shutdown? That pisses me off. This is not a political thing. I just think both parties have shut down the government before. And it's their job to make sure it's not shut down.

9:21Meanwhile, we're not paying TSA agents or air traffic controllers or all these other parts of the government. We're paying Congress. The people responsible for the shutdown get to keep paying. I want them to get their pay also suspended until the government reopens. How about that? I am wholeheartedly with you on that, my friend. It's like basically like going on vacation. You're like, yeah, we vote to not work, but we also vote to keep getting paid. Super cool for us. Everyone else, figure it out. It sucks. All right. So that's obviously the big news, but it might be the one of the things that happened on the first that actually has the least impact on the housing market.

10:04So we're going to take a quick break, but we'll come back with some of the other things that will be impacting the market more directly. Stick with us. Most investors spend all their time talking about their high level returns, but that's not the number that actually matters. What actually matters is what you keep after taxes. And that's where multifamily real estate quietly stands out. With built-in advantages like depreciation, the right deals can generate steady cash flow while reducing the tax drag. BAM Capital structures its multifamily investments around those fundamentals, pairing tax efficiency with disciplined operators and a long-term approach.

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12:32Welcome back to On the Market. I'm here with Henry Washington talking about what a big day we had on October 1st just for the housing market. We just talked about the government shutdown. There are a few things that happened that I think more directly will impact the housing market. The one that's really got me thinking is these new tariffs. If you haven't heard, we're seeing tariffs implemented as of yesterday, 50 % on kitchen cabinets, 30 % on upholstered furniture, and 25 % on construction trucks. And this to me, these are like just a package aimed at real estate investors. I know it's not probably intended that way.

13:11But when I read these, I was like, man, these are all going to hit real estate pretty hard. What was your reaction? Yeah, my reaction was, of course, this happens the year I decide to build my first new construction homes that these tariffs come in. And luckily, I haven't gotten my loans from the bank yet, so I can adjust my budget to absorb a little more construction cost. But for a lot of new builders who have already gotten their funding for their projects and they based it on free tariff numbers, this could start eating into people's profits. And my biggest concern or point of confusion is it seems that the government or mainly the president has been very focused on housing and affordability and wanting to get interest rates down and trying to make housing more affordable for people, which is good for the country as a whole.

14:10But these new tariffs would essentially do the opposite of that because it would make housing more expensive because the builders and the flippers and everybody else building and adding supply to the housing market is going to try to compensate for the profit they're going to lose by increasing the prices. And that does the opposite of affordability. So it was just a confusing thing to see. It's sort of contradictory policies a little bit. I've had a lot of questions about this and the reasonable questions people say, oh, just buy American-made cabinets or furniture or trucks. That is true. You could do that.

14:47But we're already seeing this in the data. But the prices for even American-made goods in this new tariff situation we're in are going up. And it's because the input costs for American manufacturers are also going up. When people say they are, quote, unquote, made in America, and this is not a dig. I think this is the reality of the economy. People say it's basically means assembled in America, right? Because like no, really in this globalized world we live in, like if you're building Ford, you know, a massive construction truck, you're getting parts from all over the world. So all of those input costs are already starting to go up.

15:25That's everything from aluminum to steel, components that are coming in from China or a lot of these other places. Those are going up. And so their costs are going up and they ideally, these companies want to pass those expenses on to the consumer. Whether they can do that or not, it depends in a free market country on competition. So like if there's a lot of competition for market trucks, Ford is less able to pass those costs on to the consumer. But now any competition that's coming in from outside of the country is going to be more expensive. So it's probably going to be 25 % more expensive.

16:06So that gives Ford room to raise prices to compensate for their higher input costs and pass that on to the consumer. Now, we don't know how much that will happen. What we've seen so far is that most companies are not passing 100 % of their increased costs onto consumer. That's good for consumers right now. But most of the data shows that they're just kind of doing that gradually rather than being like they don't want to shock their customers. So they're not going to be like, oh, we're going to just jack up the price of trucks by 25%. That would be very jarring and bad for the economy. So they're probably doing it a little bit every month or every year.

16:42They're going to just trickle that in. And so there's very good reason to believe that on cabinets – I'm just using trucks as an example, but cabinets are going to be the same thing. The wood that we use for cabinets, a lot of that is imported from Canada that has a 10 % or 15 % tariff. So all these things are going to contribute to higher costs during a time where development – you do this, Henry, but development is pretty hard to make a pencil in the first place. It's not this like lucrative, super lucrative thing as it was in the past. Construction costs are already very high. And so I just worry about how this is going to impact the pace of not just new construction, which we need in this country, but also renovations.

17:24Like renovations and flipping is going to become harder with this stuff too. Yeah, absolutely. I mean, even your typical mom and pop flipper who – right. So if you think about the big time flippers, they're flipping hundreds of homes, right? they're typically sourcing materials in bulk and get some sort of a discount for doing that in bulk but a small percentage increase in materials equates to big dollars for the big flippers right and so that the tariffs on these things are going to have a pretty massive impact on their bottom line and then if you think about the mom and pop flippers you know we're the ones that just get our supplies from Lowe's and Home Depot and in those kinds of places.

18:06But the tariffs, again, will, I think we'll start to see as new product hits the shelves in these stores, that the prices are going to be going up because they're going to have to pay more to get these products, which means that gets passed on to the consumer. And, and so it just means for you, mom and pop flavors are for everyone. Really. You have to pay attention to when these things are starting to hit so that you can account for them in your underwriting and you not pay as much for a property so that you have more margin to, if you have more margin for your construction budget. And the problem that that creates is more margin means you need to pay less.

18:46Paying less means you need a seller to say yes to a lower price. And sellers aren't often going to do that, which means less houses get flipped, which means less inventory on the market, which has a negative of impact on the housing market, right? So that's the kind of trickle down effect of these tariffs or this situation. And, you know, I don't know that we'll see an impact for several months when we start to look at the numbers on the inventory numbers and what's happening from that perspective. And it's just tough. Like I said, it was a confusing, it's a confusing message, but it's the reality that we live in.

19:19And so you just need to be aware of it so that you're not bleeding money on your flips. And if you are a builder or someone who's already budgeted for these things, you need to start figuring out where you can cut in order to make your margins. So you're not losing money in this like fast paced changing economic environment. For sure. As someone who's learning to flip, I'm in the middle of two right now. cabinets are the worst like they're so expensive it's insane like like so i just that's what i am sure the president is not thinking about it this way but i was like man you have to pick the most expensive thing and make it even can it be like toilets you know if toilets went up 20 i'd be fine with it you know but cabinets it's like it's already so expensive it's going to get even more expensive and i agree with you you know the president has been talking about declaring a national housing emergency because housing is super unaffordable and I'm on board.

20:18Like how do we get housing more affordable? You know, like that is a main question. And to me, you know, we talk about it all the time on the show. Short term, there's probably stuff that you could do. Long term, it's supply. And the reason there's not enough supply is construction costs. Like if you really want to like drill down to the thing that we could do to make the housing situation better five years from now, 10 years from now, I think the number one thing is reducing construction costs, like figuring out a way to make it more profitable for people to build. Sure, big, multi, you know, multinational public companies can figure out a way to do it at scale.

20:55But like the average person can't build homes right now. And that is a big problem in our housing supply. And so I just I hope that something happens where the construction costs come down. Yep. The two areas for margin and margin equals profit when you're a builder are construction costs. So what's it cost you to build the property? The cheaper you can build it, the more money you can make. And land costs. The cheaper you can get the land, the more money you can make. And so if the government can help or local government can help with builders getting land or tax breaks or some incentives for buying certain land, that helps build affordable housing because you've got the land cheap, so you can make more margin, as well as getting construction costs down.

21:37Those are the things that are going to impact whether or not people are able to build more housing. We got to shut down. We've got new tariffs, but there's more that happened. Just those two things alone would be huge. But wait, there's more. There's more that happened on October 1st that we need to go over, but we're going to take one more quick break. We'll be right back. Here's the truth about passive investing. If the strategy isn't right on day one, the returns won't save it. Multifamily real estate offers structural advantages. Many investors are overlooking, including depreciation that can help offset taxable income while cash flow continues.

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24:46welcome back to on the market i'm here with my friend henry washington after kathy and james completely abandoned us because henry and i want to play golf uh and we're here just discussing everything that went on on october 1st we've talked about the shutdown we have talked about the new tariffs but i wanted to talk about something that worries me a little bit which is that funding for FEMA's flood insurance program has now lapsed. And so that means that they're not going to be issuing new policies. I'm not sure. I think people who already have policies will be covered. But this worries me a lot because we're already seeing in Florida, for example, the biggest correction in the country is really going on in Florida.